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Friday, June 14, 2013

Deliberations begin as hearings draw to a close in Karlsruhe

The hearing at the German Constitutional Court into claims against the ECB's crisis policies is now over. Day one saw verbal jousting between the two men to the left (Bundesbank President Jens Weidmann and ECB Executive Board Member Jörg Asmussen) which we covered on our live blog. Day two of the hearing was a bit more cagey and less political but possibly more revealing in terms of the Court's thinking.

Constitutional Court Judge Peter Müller kicked off by reiterating the strict rules of the game:

“it is clearly defined in which china shop the elephant of monetary policy is not allowed – monetary state financing.”

Clemens Fuest, Research Director at the Oxford University Centre for Business Taxation, shrugged his shoulders and replied:

“If OMT is ECB’s commitment to buy state bonds to a non-defined extent, than I wouldn’t know how to prevent the contact with the china shop”

Being slightly more direct (as might be expected), Head of the Ifo
Institute Hans-Werner Sinn said that the ECB engages in “regional fiscal
policy” and that the Central Bank’s OMT programme is basically “a free
insurance for investors when a state goes bankrupt”.

It's clear the Court remains concerned that the ECB could overstep its mandate. President of the Court Andreas Vosskuhle suggested that the current
conditions attached to the OMT, the ECB’s bond-buying programme, are on a
“very abstract level” but if correctly applied “could be a good middle
way…of distinguishing between monetary and fiscal policy”.

A rather diplomatic construction but conditionality is a key issue here, as we’ve pointed out. The fundamental problem is that since there is no legal documentation and the OMT has
never been tapped, it is very challenging for the court to judge
how strictly the conditions will be applied. They could make a value judgement over whether they trust the ESM and eurozone politicians to fully implement the conditions but this could well be beyond the scope of the legal judgements the Court is allowed to make.

As Süddeutsche Zeitung's
Markus Zydra points out, there is significant ambiguity around one of Asmussen's key points - that the OMT is practically limited since it can only purchase short term bonds. This is especially true given ECB President Mario
Draghi's (and other's) previous remarks that there are no ex-ante limits to the OMT. Chief economists of DZ Bank Stefan Bielmeier put it nicely saying,
“there is a dual rhetoric of the ECB…[they] tell everybody what they
want to hear” - exactly as we noted here.

A running theme of the coverage following day two has been the signfiicant time given to those arguing against the ECB. ECB proponents reportedly told Handelsblatt “we feel like at an away game”, given the level of opposition support. The paper even goes so far as to question the neutrality of the court's referees given the line-up of known ECB critics it had called to provide evidence at the hearing (e.g. Hans-Werner Sinn, Kai Konrad, Harald Uhlig, Franz-Christoph Zeitler, Clemens Fuest).

How the Court will rule remains to be seen. It's clear they have some serious concerns about the policies but are struggling given the hypothetical nature of the case - the OMT remains undefined and unused, so any claims against it rely on second-guessing its implementation. Ultimately, it could be a question of whether they take the ECB at its word or not. Approval of policies but with some extra constraints remains the most likely outcome.

A final ruling is due for September although many involved expect a delay until after the German Federal Elections on 22 September. In the meantime, there are already those calling for a re-match in Luxembourg.

8 comments:

Rik
said...

1. ESM and mandate are basically 2 seperate issues. ESM is directly about the parliament's budget right. While the mandate issue is either 123 etc and/or 88 GG (transfer of powers by Buba) is at best indirectly.

2. Vosthingy went imho a bit over the marc. Bit strange for the highest judge in the country. Whether it is monetary or fiscal is basically not relevant. What relevant is if it is forbidden or not (either under the treaties (with some legal complications) or under the GG (with some enforcement complications).

3. Focus on the limitations of OMT looks simply of very marginal importance to me. Anyway it concerns possible amounts that are huge. And the impression earlier rulings gave simply looks to push the amount over the line with or without Bundestag approval.Next to standard Bundertag approval even with an own national bank looks already pretty weird, but with the ECB it simply looks unrealistic.

4. I donot see really the problem with the OMT not being legally appopriately described. The GCC can simply put conditions and possible sanctions in its ruling (which will as a consequence also practically be applicable for all future cases (like when the ECB puts things finally in writing). Happens all the time.Main complication is how to cover a largely virtual yet case. Anyway it should be harder (if they go that way) as Merkel needs to make clear that cliffseekers (basically her standard behaviour) are not appreciated.

Looking at the two articles linked in the last sentence it seems that reality is beginning to dawn for at least some sections of the German press.

Namely, that the ECB is an EU institution governed by EU law as interpreted by the EU's ECJ, not a German institution subject to German law under the control of any German court; and while the latter might express a view about the legality of ECB actions under EU law the final decision would rest with the ECJ; and if the ECJ found that the German court's interpretation of the German constitution was incompatible with Germany's solemn obligations under the EU treaties regarding this very important matter it would become necessary either for the German constitution to be amended or for the German court to think again about its interpretation.

If Germans don't like that then the answer is that they should have stopped their politicians getting them into that EU system, and if they find it intolerable then the answer is that Germany should leave the EU - not just leave the euro, but leave the EU.

Which in the case of the UK also is exactly what should happen; one longstanding and consistent theme in the arguments for getting us out of the EU has been a refusal to accept that the validity of our national laws should be judged by a bunch of eurofederalists sitting as a court in Luxembourg.

I think maybe you haven't grasped that the ECJ asserts the primacy of EU law not only over the ordinary laws of member states but also over their constitutional laws.

Read about that here:

http://eur-lex.europa.eu/en/editorial/abc_c05_r1.htm

“The Court has since consistently upheld this finding and has, in fact, developed it further in one respect. Whereas the Costa judgment was concerned only with the question of the primacy of Union law over ordinary national laws, the Court confirmed the principle of primacy also with regard to the relationship between Union law and national constitutional law.”